Following the lead of numerous other oil and gas companies whoare trimming staff this year because of low commodity prices, UnionPacific Resources Group announced it will reduce headquarters staffby 14%, or about 140 positions. Combined with attrition, UPR’sheadquarters staff will have been reduced by about 20% since thebeginning of the year.

UPR said the staff cuts will result in annual pre-tax savings of$12 million, but it will take an after-tax charge of $34 million inthe fourth quarter that includes severance and other costs of about$11 million. The fourth quarter charge also includes $23 millionfor marking to market certain major gas transportation contracts.UPR also said it is anticipating a non-cash charge to earnings inthe fourth quarter attributable to a writedown in the book value ofits properties in recognition of weak oil and gas prices andreserve revisions.

UPR has significantly cut back its U.S. operations this year,divesting an estimated $600 million in exploration and productionproperties. The property divestitures have covered a vast amount ofacreage in Canada, the Rocky Mountain region, Texas and the Gulf ofMexico. Additional property sales are scheduled for early 1999. Theproperties identified for sale represent about 10% of its reserves,production volumes and cash flows.

UPR acquired Norcen Energy, with its strong Latin Americanfocus, earlier this year for $2.9 billion in an effort to expandproduction internationally. But the deal came with a large debtassumption of $900 million.

The company announced two weeks ago it was selling its entiredomestic gathering, processing and marketing operations to DukeEnergy for $1.35 billion. The sale to Duke was designed to pay downthat debt and unload operations that were performing poorly in alow commodity price environment. The deal is expected to becomplete next March.

As a result, the headquarters staff cuts are just the first waveof downsizing. About 600 more employees will be leaving the companyas part of UPR’s sale to Duke.

UPR reported a $17.3 million net loss during the quarter endedSept. 30, compared to $67.2 million in net income during the sameperiod in the year prior. The earnings decline was attributed tolower oil and gas prices, a $64 million increase in interestexpenses related to debt from the Norcen acquisition and a $43.4million loss on foreign currency exchange. Also contributing to theloss were lower operating results from gathering, processing andmarketing operations.

Rocco Canonica

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